News

Sep 16

Consumer Protection & Residential Property

In a recent case (Modi), the Supreme Court reconfirmed the strength of the consumer protection provisions of the Property Agents & Motor Dealers Act (PAMDA).

Under Section 365(2A)(c) (ii) of PAMDA, when a seller or their agent returns the signed contract to the buyer, they must direct the attention of the buyer or their agent, to the warning statement, the information sheet and the relevant contract. Failure to do so, allows a buyer to terminate the contract and have their deposit refunded.

In the Modi case, fourteen (14) “off the plan” contracts had been entered into by various buyers in 2007, and those buyers sought to cancel the contracts in  January 2009 on the basis that the seller had breached  Section 365(2A)(c)(ii) of PAMDA. The writer assumes that the buyers were trying to avoid the contracts because of the significant downturn in the value of property on the Gold Coast brought on by the GFC.  The question before the Court was whether there was a binding and enforceable contract, between the seller and the buyer.  It all depended on whether the letter returning the contract to the buyer’s solicitor complied with the legislation.

The solicitor acting for the seller returned the signed contract to the buyer’s solicitor in a letter which stated:

“We now enclose Contract of Sale and Disclosure Statement for your attention…”

The Court held that the words used were not sufficient to comply with the legislation and amounted to a breach of Section 365(2A)(c)(ii), because there was not contained  in the letter or in any of the surrounding circumstances, any direction to the buyer to make them aware of the information sheet  and the warning statement, even though it could be clearly seen.

The seller’s solicitor argued that this case was similar to another case (Boylan) where the Court held that Section 365(2A)(c) (ii)  does not require an express statement directing the buyer to the warning statement or contract.  In the Boylan case, the seller’s solicitor returned a put and call option after it was signed by the seller and in the letter, stated what was enclosed was ‘the Put and Call Option Document”.  The Court said that the term “Put and Call Option Document” which had originally been used by the buyer’s solicitor to refer to the warning statement, option agreement and contract, and the seller in using the same term in returning the document, was adopting the buyer’s terminology and it was enough to direct the buyer to the warning statement and other documents in the returned bundle.

In the Modi case, the reference to the “Contract of Sale and Disclosure Statement” was not enough to overcome the problem. The Court stated that those words did not by their ordinary meaning direct the buyer to the warning statement or the information sheet. It made no difference that the documents were sent to the buyer’s solicitors who were aware of these documents was attached.  As a result all 14 buyers were able to terminate their contracts and have their deposit refunded, more than 2 years after purchasing the property.

This case demonstrates that conveyancing can be a technical minefield. A buyer can cancel a contract where a minor procedure has not been followed, even where  the buyer suffered no damage as a result of that breach. If the properties had increased in value, it is unlikely that the buyers would have cancelled those contracts. They had entered contracts to buy those properties at a price, and it was not the seller’s fault, that the value of those properties had gone down. The buyers suffered  little or no damage, but the seller suffered significant damage, they had relied on those contracts to borrow money to undertake the project,  they lost 14 sales in their project, and had to re-sell those  properties one assumes for much less.

The case also demonstrates that an expert in that area of law is needed to assist the parties to  overcome those technical issues, or where appropriate provide prompt and clear advice to resolve them and reduce the stress of a transaction if there has been a breach of any legislative right.

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